Legal Counsel Recommends Splitting Two-Thirds of the 2026 Budgetary Arrangements Law: What Will Be Excluded?

Introduction

In a move that has sparked concern within the Ministry of Finance, the legal advisor to the Knesset, Attorney Shagit Afik, has recommended that approximately two-thirds of the provisions in the 2026 Budgetary Arrangements Law be removed from the fast-track legislative process. Instead, these provisions should be approved through regular legislative procedures. This recommendation could potentially stall significant reforms aimed at revitalizing various sectors within the economy.

Key Recommendations from the Legal Advisor

The legal counsel, delivered on Monday, pointed out several substantial reforms being proposed in the current budget arrangements that warrant examination outside the expedited legislative framework. Among the most notable exclusions include:

Dairy Industry Reform

A central focus of the recommendation is the dairy sector reform spearheaded by Finance Minister Bezalel Smotrich. The legal counsel classified it as a “comprehensive reform that changes the fundamental operating principles of a sector that has been centrally planned since the establishment of the state.” Concerns were raised about whether sufficient groundwork had been laid for this initiative, particularly regarding its implications for property rights of dairy farmers.

Establishment of Small Banks

Another critical project that may face delays is the establishment of new small banks aimed at enhancing competition in the banking sector. The Department of Finance estimates that increased competition could save small and medium-sized enterprises approximately start billion shekels annually in financing costs. The legal advisor highlighted the reform’s complexity and its potential impact on various stakeholders, asserting that a proper legislative process should be followed.

Property Tax for Vacant Land

The proposal to renew the property tax on vacant land, start of the most contentious compstartnts, also received scrutiny. The legal counsel indicated that significant work would be required on this issue, which would not be appropriately addressed using expedited legislative processes.

Additional Reforms at Risk

The recommendations also encompass a broad range of other initiatives that may need to be reconsidered, including:

• Reform of the fuel market.
• Establishment of a complementary airport to Ben Gurion Airport in collaboration with the private sector.
• Creation of a credit reservoir for businesses.
• Legislation promoting competition in the surety market.
• Regulations concerning tobacco product oversight.
• Amendments to insurance rights in the nursing sector.

What Remains in the Fast-Track Process?

Despite the sweeping recommendations for reform, a few key provisions may still be kept in the rapid legislative process. These include:

• Adjustments to income tax brackets.
• Bank profit taxation.
• Incentives for research and development.

Conclusion and Next Steps

The Ministry of Finance has expressed apprehension over the extent of the proposed splits, arguing that they hinder crucial structural reforms both within and outside the budget arrangements. The ultimate decision lies with the Knesset’s committee, led by coalition chairman MK Ophir Katz, which is expected to finalize which reforms will be separated and which will be processed through various Knesset committees for final approval.

This extensive reevaluation of the budgetary arrangements highlights the ongoing tensions between legislative efficiency and the depth of scrutiny required for significant reforms, reflecting broader challenges in the legislative process.